Question

The change in natural rate of output alters the long-run aggregate-supply (LRAS) curve due to several factors. Discuss.

Answer 1

Change in natural rste of output necessarily changes LRAS curve as for example if the natural outputs growth rate is high the inflation corresponding to it is also high and subsequently the money supply inong run reduces to curb excessive inflation.

On vice versa basis, if natural outputs growth rate is low the inflation is low and hence money supply in longvrun grows to boost output and thus its completely dependent and inversely correlated with natural rate of output based on expansionary or contractionary policies applicable by the Government or Central bank of the nation.

Some other factors like unemployment, exchanges rate, fiscal deficit also alter the money supply.

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